Archives of “November 19, 2019” day

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Near-deal from May now being used as benchmark on how much tariffs to be rolled back – report

  
  Analysis
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US contemplates removing more tariffs than anticipated

China and the US are discussing linking the size of tariff rollbacks to the preliminary terms set in the deal that failed in May, according to Bloomberg who cites two people familiar.
The White House is still debating the precise percentage internally but the report says a deal would at least include removing the Sept tariffs and eliminating the planned Dec tariffs.
China has demanded that all tariffs imposed after May be removed immediately and those from beforehand be lifted gradually.
The report says that some of the $250B in tariffs imposed in 2018 are under consideration to be rolled back and that opposition to the move has softened. Overall, the White House is looking at the tariffs holistically and debating on whether to remove somewhere between 35% and 60%. Those percentages fall inline with what percentage of the overall deal Phase One accomplishes.
For reference, the US currently has tariffs on $360B in goods. That number was $250B before the May talks fell apart. On May 10, the US also raised the tariff rate on those $250B in goods to 25% from 10%.

Overall this report reflects a generally positive take and shows that both sides are working on a deal and perhaps closer than anticipated. This is the first indication they’re working off the May text but it’s also a hint that the US may remove more tariffs than anticipated. It would be a great signal for markets if anything from May or earlier was lowered.

Big gaps remain in China-US trade talks – Global Times

  
  Analysis
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This is more speculation than reporting

China’s Global Times is out with another piece downplaying the chances of a US-China trade deal.
There are no sources in the deal, instead the newspaper spoke to people who attended a US-China Entrepreneurs Roundtable.
“If the business roundtable was any indication, the trade negotiations still face major obstacles to reach any fair and reasonable deal,” the report says.

HSCB’s Bloom: Dollar is the currency to own

  
Analysis, Forex
  • A full blown US-China trade deal will be “game changer”
  • Yuan will stay pretty stable and risk assets will rally
  • Then you’ve got alternatives to the dollar
  • But don’t hold your breath (on a deal)
  • In the meantime, the dollar will “power ahead”
  • The dollar is the currency to own
I always love watching Bloom’s interviews because of how candid and eccentric he can be. He’s certainly a no frills kind of guy and this short clip accentuates that again.
He also goes on to talk about how USD/CNY made a move from 6.35 to 7.00 based on a ‘political change’ i.e. tariffs and how the big picture affecting both currencies is “all about the trade deal”, not cyclical factors such as the economy.

Let’s take stock of US-China trade talks

  
  Analysis
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What is the sentiment like at the moment surrounding US-China trade talks?

US-China
I remember questioning the sincerity of the more optimistic risk mood last month when China started to endlessly talk up chances of a trade deal across all media platforms.
It almost felt as if it was too good to be true and like it was too forceful since they have always been more reserved all along upon the conclusion of each phase of trade talks.
Well, look at where we are now. The mood has certainly made a complete U-turn with China staying eerily quiet and the only thing they’re willing to offer is that they had “constructive” talks with the US on trade over the weekend.
It feels like we’re reverting back to old habits again, that is before the round of trade talks in Washington last month.

Are we still on track for a “Phase One” deal?

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Eurozone September current account balance €28.2 billion vs €26.6 billion prior

  
  Analysis

Latest data released by the ECB – 19 November 2019

  • Prior €26.6 billion; revised to €28.5 billion
Another steady current account surplus for the euro area with surpluses observed in goods, services and primary income; offset against secondary income. Not much else to note from the reading here as the balance holds within range of previous months.

Moody’s: Global economy will remain fragile in 2020

  
  Analysis
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Moody’s weighs in with some commentary about the world economy

  • Global economy will remain fragile next year as risks to credit conditions rise
  • Rising political and geopolitical risks are exacerbating slow growth
  • That reduces economies’ abilities to respond to shocks
  • Trade uncertainty will continue to disrupt supply chains and weigh on investment
  • Overall global growth will remain lackluster amid deceleration in US and China
  • Recession risks will remain elevated in Europe and in the US
Adding that they do not expect a recession next year but recession risks are building amid a backdrop of trade policy uncertainty in the global economy.
They also mention that global interest rates will remain low and that yield curves are to remain flat for several years going forward.
I think this is pretty much the base-case scenario for the global economy at this point i.e. slow and sluggish growth with rising risks of things turning into something worse.
Any potential rebound in global trade and manufacturing conditions will likely take a few years to come about so if we can weather that storm, then perhaps the recession can will be kicked down the road again for a few more years.
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